Beginning 6th April 2016, the Rent a Room scheme allows you to let out a furnished room or floor in your home to a lodger. Both landlords and resident landlords can take advantage of this optional scheme to earn up to £7,500 per year tax-free (or £3,750 if you are letting jointly).
The length of a let can either be periodic or a fixed term. Periodic tenancies run indefinitely from one rent period to the next. Fixed terms last a pre-established number of weeks, months or years.
As long as your annual earnings remain less than the £7,500 threshold, your tax exemption is automatic. You'll have to pay tax on any surplus income you earn past the threshold, and that amount must be filed in your tax return.
Be aware that charging your lodger for extra services—such as providing meals or laundry services—must be recorded as part of your earnings.
For more information, please visit HM Revenue & Customs Rent a Room Scheme Guide.
Here are the conditions for who's eligible for the Rent a Room scheme:
|Eligible if the space you're letting is...||Not eligible if the space you're letting is...|
|A single room/floor within your main home||Your entire home, rather than a part of it|
|Considered part of a trade based on letting (e.g. guest house, bed & breakfast, etc.)||Used as an office or for other business unrelated to letting|
|A secondary home, a home converted into separate flats, or a UK address while you live abroad.|
Both home owners and resident landlords can take advantage of the Rent a Room scheme. You're classed as a resident landlord whenever you let out part of a property considered to be your main or only home. This means you can opt in to the Rent a Room scheme even if you're renting your home (provided your lease allows you to do so).
It's your choice whether or not the Rent a Room scheme's tax-free income is worth the trade-off with your additional expenses, but with some quick calculations, you'll be able to tell whether opting in or opting out is more beneficial.
If you decide the scheme is right for you and you don't yet have a lodger yet, check out our video for some guidance:
We provide landlord insurance for a wide range of properties and tenants including multi occupancy, students, local authority placements, unoccupied and much more. See our landlord insurance page.
Alison Wild BCom (Hons), MAAT, MATT, Taxation Technician is a highly respected industry professional who has been working with and advising SMEs in areas including tax, pensions, insurance and marketing for over 25 years. She is a member of the Association of Accounting Technicians (AAT) and Association of Tax Technicians (ATT) and also has over 20 years' experience as a residential landlord.
Date: May 17, 2016
Category: Commercial Property